The Closure of Honda in Swindon: What impact will it have and how should the Taskforce respond?

Honda’s decision to close its Swindon plant has sent shockwaves through the UK automotive industry. With 3,500 direct jobs at stake, it has been described as a “shattering body blow.”

Given Honda’s importance to the local economy in Swindon, attention has swiftly turned to the economic impact for local communities and the wider region. The Business Secretary, Greg Clark, has announced a Taskforce to respond to the closure.

The Taskforce will need to grapple with the following:

What will be the immediate and longer-term economic impact of the closure?

What steps will need to be taken to minimise the impacts for the local area?

How large will the immediate economic impact be?

3,500 direct jobs is in itself around 4% of Swindon’s workforce and accounts for a third of all manufacturing in the town. It is about twice as large as the entire construction sector and is larger than the legal, accounting and real estate sectors combined.

What about the knock-on effects locally?

There has already been some speculation here. The company itself has stated that there are a further 3,500 jobs within its direct UK supply chain and partner companies serving the plant. But these are UK-wide, extending to places like the Midlands and Wales. Also, the figure does not take into account the multiplier effects further down the supply chain.

The only way to estimate the local effects properly is through a detailed analysis of the company’s supply chain: its value, location and sectoral composition. But we do know from our work in Swindon that Honda imports a good deal of its intermediate product from both Japan and Europe. All of the Japanese car companies in the UK have at some time been criticised for operating ‘screwdriver’ plants – transferring sub-assemblies for final production rather than fully integrating with the local economy

So, Honda’s local manufacturing supply chain links may not be as robust as we might think.

In fact, from our own modelling of the South West automotive sector with 4-Consulting, we know that outside the main Honda Plant, most of the jobs supported in the region are in services. Our model suggests that around 600 jobs may be at risk across the South West region from businesses manufacturing parts for Honda with a further 600 jobs at risk in transport, storage and logistics. For example, the Port of Bristol exports Honda cars produced in Swindon across the world.

Recruitment agencies and training organisations based in the South West have been used by Honda (and suppliers to Honda) to provide contract and agency staff. The model also suggests further job losses in engineering and technology services within the region. Overall, for every direct job in the plant, there could be almost 3 jobs currently supported in the supply chain across the region in these other sectors.

Working this through, 14,000 jobs and £2.4 billion in turnover could be lost from the South West economy.

The other thing to consider is the effects on local retail and other sectors from the hit to employees’ own personal expenditure (what we call induced effects). These effects are likely to be felt locally. Again, we can’t know for sure without detailed data, but using Census data we estimate that around 70% of Honda’s workforce lives in Swindon. Many of Honda’s employees are highly skilled and hence will have higher than average disposable incomes.

So, these local induced effects are likely to be significant. If we include these induced jobs, the total number of dependent jobs across the region rises to nearly 4.

Or in other words, up to 17,000 jobs could be at risk in the South West if we include all of these knock-on effects.

What economic effects will it have over time?

This is much more difficult to predict because it all depends on how the economy adjusts: specifically, on the prospects of former Honda workers gaining employment elsewhere in the area, and the ability of affected suppliers to replace lost turnover in other markets.

Back in 2005 we worked with the MG Rover Taskforce. This was formed to deal with one of the biggest industrial failures the UK had seen for some time (5,500 workers lost their jobs overnight when the company went into administration). We found at that time that:

The initial impact estimate was around 13,000 job losses in the West Midlands

Around 5 months later, 45% of these people had been re-employed elsewhere

We concluded at the time that the medium-term (up to 2 years) impact would amount to 4,500-6,000 jobs and the longer-term (up to 5 years) impact would be 1,000 to 3,000 jobs.

Of course, this happened in very different macro-economic, sectoral, fiscal and geopolitical circumstances. Prevailing conditions now are less benign, although paradoxically Swindon has been doing quite well recently – see the recent Centre for Cities Outlook Reports ranking the area 8th in term of productivity amongst English cities.

The other important thing is that these impacts would most likely have been worse in the absence of the co-ordinated interventions of the MG Rover Taskforce. Which leads us to our final question…

What should the Taskforce do?

Greg Clark has quickly announced a new Taskforce and it has already met. The MG Rover Taskforce had an acute task with a few months to develop a contingency plan before the company went into administration. The Swindon Taskforce has until 2021 before the plant will close, so there is at least some time to prepare.

Based on our MG Rover experience and our work in Swindon, we think that the Taskforce needs to focus on the following:

Ensure the Taskforce has sufficient resources: a dedicated Fund will be needed to support interventions over a number of years. For comparison, the MG Rover Taskforce had over £175m available (at 2005 prices). This funding must provide the flexibility to respond quickly and flexibly, rather than being hampered by bureaucracy.

Analyse Honda’s current economic footprint and linkages (the numbers and types of direct jobs, their skill and salary levels and residential locations, and the nature, scale and location of its supply chain and contractors) to identify the likely immediate economic effects and where they will be concentrated.

Open up clear lines of communication with affected employees and suppliers through different channels to ensure they are provided with information, advice, guidance and signposting to support.

In the short term, focus interventions on minimising the immediate effects, with a key focus on re-employment, discouraging out-migration and helping suppliers to sustain their businesses:

Work with affected employees to develop individually tailored plans (this will include training, start-up support, and setting up a mechanism to match Honda workers to other jobs in the manufacturing sector)

Conduct parallel work with local suppliers to help them identify opportunities for diversification sectorally and geographically. This should cover all affected suppliers but especially those for which Honda business is a significant proportion of their turnover.

In the longer term, the wider economic and industrial strategy for the area will need to be revisited and a set of linked interventions developed, including:

longer term re-skilling of employees aimed at sustained improvement in the area’s skills base, linked to skills shortage areas and raising productivity

work with suppliers to improve their global competitiveness and links with priority sectors

a rigorous options analysis for future use of the site, backed by market analysis and linked to the refreshed economic strategy

consideration of the use of spatial interventions like a Regeneration and Enterprise Zone to stimulate economic recovery, linked to wider strategic plans.

Alongside the formal interventions, the Taskforce should encourage the development of informal networks of support including support for family members and work through community groups.

There will need to be monitoring of the local economic effects over time as well as the effectiveness of individual interventions.

Given the trends towards electric drivetrains and autonomous systems, it is clear that all manufacturers are entering a period of consolidation. If this does create a new transformation crisis for the industry, the UK’s national and regional authorities need to ensure that they learn the lessons from other large-scale redundancies. This will not be the last time that technology and trade threaten the prosperity of our regions.